@xiao2001 , As I understand it, you made an excess contribution for 2020 and did not obtain a return of contribution by the deadline, including extensions, for filing your 2020 tax return. This means that you are not permitted to make a code-2 distribution to resolve the excess. The only permissible way to resolve the excess by making a distribution is by obtaining a regular distribution (code 1, which it appears that you have done) equal to the amount of the excess (or more) and making the excess amount distributed taxable by not applying it to medical expenses. The result is that it will be added to your taxable income (double taxation since this amount was not permitted to be excluded from your taxable income on your 2020 tax return) and, if you are under age 65, a 20% penalty will also be added to your overall tax liability.
No explanation to the IRS is needed. After entering the code 1 2022 Form 1099-SA the you received and indicating that the amount applied to medical expenses was the gross amount minus the amount of the excess (possibly $0 applied to medical expenses), TurboTax will include the amount on 2022 Form 8889 line 16 (possibly subject to penalty on line 17) and on 2022 Form 5929 line 44, eliminating the excess. None of this prevents e-filing.
